Coles to spend almost $1bn to get two 'game-changing' sheds

Supermarket giant Coles will spend $950 million over next six years building two state-of-the-art automated distribution centres in a high stakes bid to keep pace with arch rival Woolworths.

Coles’ outlay on high-tech warehousing follows the decision of rival Woolworths to make a $562 million investment in the southern hemisphere’s largest and most technologically advanced distribution centre in Melbourne’s Dandenong.

The new Coles warehouses will include state-of-the-art automation technology.

Woolworths expects to open its facility this year amid hopes it will provide a “quantum leap” in productivity.

Coles, spun out of Wesfarmers in November last year, has signed 20-year leases to build the two identical 70,000 square metre centres at a Goodman's facility in Redbank, Brisbane and another in a Goodman's and Brickworks' joint venture at Kemps Creek in western Sydney.

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The new distribution centres will replace five existing sites and the automation boost will result in some job losses, Coles confirmed.

Coles chief executive Steven Cain said the company will make a $146 million pre-tax provision in its December half result, relating to lease exit costs and redundancies at existing distribution centres which it will close over next five years.

Coles managing director Steven Cain.Credit:Wayne Taylor

“This will provide a safer working environment for our team members, lower supply chain costs, enhance our overall business competitiveness and make life easier for our customers by having the right offer in the right location,” he said.

The company has teamed up with German logistics automation specialist WITRON Logistik + Informatik to construct the automated interiors of the high-tech warehouses which will handle distribution and packing of the supermarket’s dry groceries, rather than chilled or fresh foods.

Coles first announced its intention to build the two facilities last year in a bid to slash operating costs, but did not at the time reveal the full capital cost of its push into automation.

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At the time, analysts questioned whether the group could afford its forecast dividend payout of 80 to 90 per cent of profits given the high cost of the new technology.

The group’s chief supply chain officer Matt Swindells said the automated centres would take five years to bring online and be a “game changer”.

The technology will allow individual stores to order specific products from a larger range of offerings and have them packed and delivered for unloading on specific shelves in the store.

“It will allow us to move from standard pallets to aisle-specific pallets. It will revolutionise that process and drastically speed up time to shelf,” he said.

The new warehouses will store and distribute twice the volume of groceries with half the footprint of existing centres, he said.

“With land prices like they are this is a very good way of doing things.”